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Simon v. Liberty Mutual Fire Insurance Co.

United States District Court, W.D. Missouri, Western Division

December 8, 2017

GLEN SIMON and SOLARIS POWER SERVICES, LLC, Plaintiffs,
v.
LIBERTY MUTUAL FIRE INSURANCE COMPANY, ASSOCIATE ELECTRIC & GAS INSURANCE SERVICES, LTD., CAPITAL ELECTRIC, INC., and KEVIN and ANITA JOHNSON, Defendants.

          ORDER DENYING MOTION TO STAY AND COMPEL ARBITRATION

          GREG KAYS, CHIEF JUDGE UNITED STATES DISTRICT COURT

         This case is an insurance coverage dispute concerning an uncontested $44 million judgment entered against Solaris Power Services, LLC (“Solaris”) in the Circuit Court of Jackson County, Missouri, in favor of Kevin and Anita Johnson (“the Johnsons”) pursuant to Mo. Rev. Stat. § 537.065.[1] The judgment arises from an accident at the General Motors Fairfax plant in Kansas City, Kansas, in which Kevin Johnson, an electrician employed by Capital Electric Construction Company, Inc., (“Capital”) was severely injured because of Solaris's negligence in failing to de-energize equipment on which he was working. Capital was insured by Liberty Mutual Fire Insurance Company (“Liberty Mutual”), and Associate Electric & Gas Insurance Services, LTD. (“AEGIS”), provided excess liability insurance to Capital. Plaintiffs Glen Simons (“Simons”) and Solaris (collectively “Plaintiffs”) allege they were, or should have been, additional insureds under both policies, but both insurance companies wrongly denied them coverage, damaging them.

         Now before this Court is AEGIS's Motion to Stay and Compel Arbitration (Doc. 86). Holding the policy's arbitration provision is unenforceable, the motion is DENIED.

         Background

         Counts III and IV of the Petition are claims for breach of contract and bad faith refusal to defend and settle against AEGIS. Plaintiffs allege they were additional insureds under AEGIS's insurance policy issued to Capital, and that they were damaged by AEGIS's denial of coverage.

         The AEGIS excess policy at issue contains a Dispute Resolution Condition which requires any controversy or dispute arising out of the policy to be resolved through several steps, and ultimately, mandatory binding arbitration. AEGIS Policy IV. (R)(3) (Doc. 87-1).[2] The same provision also states, “The terms of this POLICY are to be construed in an evenhanded fashion as between the INSURED and the COMPANY in accordance with the laws of the jurisdiction in which the situation forming the basis for the controversy arose.” Id.

         Discussion

         AEGIS moves to stay the litigation and compel arbitration on the grounds that its policy contains a mandatory, binding arbitration clause. AEGIS contends that North Dakota law should apply to this dispute, and that under North Dakota law, the policy's arbitration clause is valid and enforceable. AEGIS moves the Court to dismiss all claims against it, or alternately, stay the proceedings against it and compel arbitration.

         The Johnsons respond that the arbitration clause is unenforceable because mandatory arbitration provisions in insurance contracts contravene Missouri public policy. Alternately, they argue that the contract also includes a choice of law provision which directs that Missouri law should govern this dispute.

         I. The arbitration clause contravenes Missouri public policy.

         A federal court exercising its diversity jurisdiction applies the choice of law rules of the state where it sits. Prudential Ins. Co. of Am. v. Kamrath, 475 F.3d 920, 924 (8th Cir. 2007). A Missouri court will apply the law of another jurisdiction so long as “this law is not contrary to a fundamental policy of Missouri.” See Sturgeon v. Allied Prof'ls Ins. Co., 344 S.W.3d 205, 210 (Mo.Ct.App. 2011) (declining to apply California choice of law provision because it would allow an arbitration clause in an insurance policy to be enforced, which is contrary to Missouri public policy). The problem with the proposed application of North Dakota law-or, for that matter, the application of any other state's law that would enforce the arbitration provision-is that honoring it would contravene Missouri public policy.

         Section 435.350 of the Missouri Arbitration Act prohibits mandatory arbitration provisions in insurance contracts. Id. at 210. It states,

A written agreement to submit any existing controversy to arbitration or a provision in a written contract, except contracts of insurance and contracts of adhesion, to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. Contracts which warrant new homes against defects in construction and reinsurance contracts are not ‘contracts of insurance or contracts of adhesion' for purposes of the arbitration provisions of this section.

         Mo. Rev. Stat. § 435.350 (emphasis added). “This section makes clear that Missouri law deems arbitration agreements in insurance contracts to be invalid” and “contrary to Missouri public policy.” Sturgeon, 344 S.W.3d at 210; see Standard Sec. Life Ins. Co. of New York v. West, 267 F.3d 821, 824 (8th Cir. 2001) (upholding a district court's determination that the Missouri Arbitration Act rendered an insurance ...


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